WASHINGTON—The AFL-CIO’s pension panel has roundly condemned proposals made by two leading Senate Republicans to shore up the nation’s endangered multiemployer pension funds that would cut benefits by up to 19%.
The federation’s Retirement Security Working Group said Dec. 2 that the proposals contained in a white paper released Nov. 20 by Finance Committee chair Charles Grassley (R-Iowa) and Sen. Lamar Alexander (R-Tenn.), chair of the Health, Education, Labor and Pensions Committee “will not only injure the retirees and active participants it purports to help, it also will precipitate the collapse of all multiemployer pension plans.”
About 125 multiemployer plans say they are in “critical and declining” condition—projected to become insolvent over the next 20 years—endangering the retirement benefits of more than 1.3 million workers. The Teamsters’ Central States Pension Fund, with some 400,000 participants, is the largest. It’s projected to go broke in 2025, with threatened cuts as high as 70%. The Treasury Department in 2016 rejected its request to reduce benefits by 23%.
Grassley and Alexander’s proposals would have retirees in those plans take a direct 10% cut in their benefits. It would also have them pay up to 10% of their remaining benefits in premiums to the federal Pension Benefit Guaranty Corporation, which guarantees minimum payments to retirees in bankrupt plans. The PBGC’s deficit rose to $65 billion last year.
The AFL-CIO’s panel of 18 union leaders included several who have members in “critical and declining” plans, among them the heads of the United Mine Workers of America, the International Association of Machinists, the American Federation of Musicians, International Brotherhood of Electrical Workers, the United Food and Commercial Workers, and the Bakery, Confectionery, Tobacco Workers and Grain Millers’ International Union.
“We need to act quickly, but we can’t just pour money into failing and mismanaged funds,” Grassley said in a statement. Alexander said the changes were necessary because “employers and unions have made pension promises to millions of American workers that they can’t keep.” He said they would “shore up the PBGC’s role as an insurance company with a limited infusion of taxpayer dollars instead of an open-ended bailout, and institute important structural reforms so this does not happen again.”
Their proposals would allow multiemployer-plan sponsors to convert to “composite” plans that offer a return on investment rather than a guaranteed monthly income. Those plans would not be guaranteed by the PBGC. They would also “partition” plans to separate obligations owed to “orphaned” beneficiaries whose former employers stopped contributing to the plan, and raise the maximum amount the PBGC guarantees retirees in bankrupt multiemployer plans, now $1,073 a month. The maximum for single-employer plans is more than $5,600 a month.
The Teamsters said they were “actively reviewing the proposal and its impact on Teamster funds” and had been “working with Congress to find a bipartisan solution.” The union has endorsed the Butch Lewis Act, a bill passed by the House in July that would set up a federal agency to give low-interest loans to endangered pension funds until they can stabilize themselves.
The Butch Lewis Act’s logic is that the reason most of the endangered plans are in such bad shape is that they have too few active workers contributing to their funds to cover what’s owed to current and future retirees. Those plans, particularly in trucking, mining, construction, and entertainment, have suffered from employers going out of business and the growth of nonunion companies, as well as investment losses in the Great Recession of 2008-09. The bill’s hope is that the long-term loans would enable those funds to cover their obligations until the number of retirees has shrunk enough for them to be viable again.
“I’m glad to see Republicans in Congress have come forward with a pensions proposal of their own,” the bill’s Senate sponsor, Sherrod Brown (D-Ohio) said in a statement Nov. 20. “I have concerns with some of the provisions put forth by Republicans, but I look forward to working together with Chairman Grassley and Senator [Rob] Portman to find a bipartisan solution.”
UMWA International President Cecil E. Roberts, however, denounced the Grassley-Alexander proposals. “This is not a starting point for negotiations,” he said in a statement Nov. 29. “It is a multibillion dollar tax increase on working families—especially retired Americans living on fixed incomes—their employers and their unions. Retirees covered by the UMWA Pension Fund, for example, would be subject to a 10% tax on pensions that average a little under $600 per month.”
That tax would come from the Grassley-Alexander proposals to have plan beneficiaries pay more of the cost of PBGC premiums. They would raise basic PBGC premiums from $29 a year per participant to $80, but assess troubled plans more based on the severity of their distress, possibly increasing their premiums more than sixfold.
“Any multiemployer pension legislation should, at a minimum, do no harm,” the AFL-CIO responded. “This proposal fails that basic test. Instead, it is punitive in nature, imposing hefty new costs that even healthy plans will be unable to survive.”
The UMWA is advocating a separate bill, the Bipartisan American Miners Act, introduced early last month by Senator Joe Manchin (D-W.Va.), Shelley Moore Capito (R-W.Va.), and Majority Leader Mitch McConnell (R-Ky.). It would use surplus funds from the federal program to reclaim land around abandoned mines to aid the UMWA’s 1974 Pension Plan, which has 92,000 participants.
Grassley and Alexander both object to any federal aid. “Given that the plans represent private-sector financial contracts, the costs of reforms should be born principally by the stakeholders within the multiemployer system,” they said.
The AFL-CIO, noting that their proposals contained “no federal financial assistance whatsoever,” compared them to “the over $700 billion that the government provided to the banks and Wall Street in 2008, and other corporate tax giveaways in recent years.”
“Retired miners, their families, and widows do not have the luxury of waiting to see if Congress can eventually come up with a comprehensive solution to the multiemployer pension crisis that treats retirees fairly,” Roberts said. “1,200 stand to lose their health care at the end of this year, 12,000 more will lose health care within a few short months, and more than 82,000 will likely see drastic cuts to their pensions a few months after that.”